ch 18 and 19 Flashcards
contingent liability
an existing condition or set
of circumstances involving uncertainty as to possible
loss that will ultimately be resolved when some future
event occurs or fails to occur
Probable
The future event is
likely to occur
Reasonably Possible
The
chances of the future event
occurring is more than remote but
less than likely
Remote
The chance of the future
event occurring is slight
Audit Procedures for Identifying
Contingent Liabilities
Read minutes of meetings
of the board of directors,
committees of the board,
and shareholders.
Review contracts, loan
agreements, leases, and
correspondence from
government agencies.
Reviewing tax returns,
CRA assessments, and
schedules supporting the
entity’s income tax liability
Confirm or otherwise
document guarantees and
letters of credit
Inspect other documents
for possible guarantees or
other similar
arrangements.
Specific Audit Procedures Conducted Near
Completion of Audit
Inquire and discuss with management
about its policies and procedures for
identifying, evaluating, and
accounting for contingent liabilities.
Examine documents in the entity’s
records such as correspondence and
invoices from attorneys for pending or
threatened lawsuits.
Obtain a legal letter that describes
and evaluates any litigation, claims,
or assessments
Obtain a written representation from
management that all litigation,
asserted and unasserted claims, and
assessments have been disclosed in
accordance with FASB ASC Topic 450.
legal letter
A letter of audit inquiry (legal letter) sent to the
entity’s attorneys is the primary means of
obtaining or corroborating information about
litigation, claims, and assessments
Type I Event
Conditions existed
before the balance sheet
date and affect
estimates that are part
of financial statements. Requires adjustment of
the financial statements
Dual Dating
the
report (original date
of report plus date
of subsequent event
– limits liability)
Type II Event
Conditions did not exist
at the balance sheet
date and do not affect
the accuracy of the
financial statements. Requires disclosure and
possibly pro forma
financial statements
Audit Procedures to Look for
Subsequent Events
Read Interim
Financial
Statements
Examine the
Books of
Original Entry
Inquire of
Legal Counsel
Read Minutes
of Meetings
Inquire of
Management
why do we do final analytical procedures
The objective of conducting analytical procedures near the end of
the engagement is to help the auditor assess the conclusions
reached on the financial statement components and evaluate the
overall financial statement presentation.
Subsequent Discovery of Facts Existing
at the Date of the Auditor’s Report
Notify the entity that the auditor’s report must no
longer be associated with the financial statements
Notify any regulatory agency having jurisdiction
over the entity that the auditor’s report can no longer
be relied upon
Notify each person known to the auditor to be
relying on the financial statements
Obtain a management representation
letter
The purpose of this
letter is to document, in writing, significant oral representations
made to the auditor by management.
Final Evidential Evaluation Processes
Review Working Papers
Final evaluation of audit results
Evaluate financial statement presentation
and disclosure
Obtain an independent review of the engagement
Evaluate entity’s ability to continue as a going
concern
The auditor provides what type of assurance to comply with regulatory requirements
negative assurance
Key Audit Matters
KAMs are any matters arising from the audit of the financial
statements that are communicated, or required to be
communicated, to the audit committee and that:
1. relate to accounts or disclosures that are material to the
financial statements
2. involved especially challenging, subjective, or complex auditor
judgment
Special Reporting Issues
Reports on
comparative financial
statements
Other information in
documents
containing audited
financial statements
Special reports
Special Reports
Financial statements
prepared on a basis of
accounting other than
GAAP (e.g. cash basis
of accounting)
Specified elements,
accounts, or items of a
financial statement
Compliance with
aspects of contractual
agreements or
regulatory
requirements
